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Net Neutrality on the Internet: A Two-sided Market Analysis

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Abstract

We discuss the benefits of net neutrality regulation in the context of a two-sided market model in which platforms sell Internet access services to consumers and may set fees to content and applications providers “on the other side” of the Internet. When access is monopolized, we find that generally net neutrality regulation (that imposes zero fees “on the other side” of the market) increases total industry surplus compared to the fully private optimum at which the monopoly platform imposes positive fees on content and applications providers. Similarly, we find that imposing net neutrality in duopoly increases total surplus compared to duopoly competition between platforms that charge positive fees on content providers. We also discuss the incentives of duopolists to collude in setting the fees “on the other side” of the Internet while competing for Internet access customers. Additionally, we discuss how price and non-price discrimination strategies may be used once net neutrality is abolished. Finally, we discuss how the results generalize to other two-sided markets.

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File URL: http://www.stern.nyu.edu/networks/Economides_Tag_Net_Neutrality.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 07-45.

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Length: 31 pages
Date of creation: Sep 2007
Date of revision: Nov 2007
Handle: RePEc:net:wpaper:0745

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Web page: http://www.NETinst.org/

Related research

Keywords: net neutrality; two-sided markets; Internet; monopoly; duopoly; regulation; discrimination;

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References

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  1. Andrei Hagiu, 2009. "Two-Sided Platforms: Product Variety and Pricing Structures," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1011-1043, December.
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  3. Nicholas Economides & Evangelos Katsamakas, 2005. "Two-sided competition of proprietary vs. open source technology platforms, and the implications for the software industry," Working Papers 05-02, NET Institute, revised Oct 2005.
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  29. Musacchio John & Schwartz Galina & Walrand Jean, 2009. "A Two-Sided Market Analysis of Provider Investment Incentives with an Application to the Net-Neutrality Issue," Review of Network Economics, De Gruyter, vol. 8(1), pages 1-18, March.
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Citations

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Cited by:
  1. Robin S. Lee & Tim Wu, 2009. "Subsidizing Creativity through Network Design: Zero-Pricing and Net Neutrality," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 61-76, Summer.
  2. Edmond Baranes & Jean-Christophe Poudou, 2011. "Internet access and investment incentives for broadband service providers," Working Papers 11-09, LAMETA, Universtiy of Montpellier, revised Apr 2011.
  3. Duarte Brito & Pedro Pereira & João Vareda, 2013. "Network Neutrality under ISP duopoly: on the ability to assign capacity," CEFAGE-UE Working Papers 2013_19, University of Evora, CEFAGE-UE (Portugal).
  4. Olga Shurchkov, 2013. "Coordination and learning in dynamic global games: experimental evidence," Experimental Economics, Springer, vol. 16(3), pages 313-334, September.
  5. Nicolas Curien, 2013. "Net Neutrality is Imperfect and Should Remain So!," EUI-RSCAS Working Papers 22, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  6. Ingo Vogelsang, 2013. "The Endgame of Telecommunications Policy? A Survey," Review of Economics, Lucius & Lucius, vol. 64(3), pages 193-269.
  7. Caves, Kevin W., 2012. "Modeling the welfare effects of net neutrality regulation: A Comment on Economides and Tåg," Information Economics and Policy, Elsevier, vol. 24(3), pages 288-292.
  8. Pier Luigi Parcu, 2013. "Electronic Communications Regulation in Europe: An Overview of Past and Future Problems," RSCAS Working Papers 2013/92, European University Institute.
  9. Nicholas Economides & Benjamin E. Hermalin, 2012. "The economics of network neutrality," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 602-629, December.
  10. Jay Pil Choi & Byung-Cheol Kim, 2008. "Net Neutrality and Investment Incentives," CESifo Working Paper Series 2390, CESifo Group Munich.
  11. Hong Guo & Subhajyoti Bandyopadhyay & Hsing K. Cheng, 2009. "Broadband User Discrimination and the Net Neutrality Debate," Working Papers 09-13, NET Institute, revised Aug 2009.
  12. Anna D'Annunzio & Antonio Russo, 2013. "Network Neutrality, Access to Content and Online Advertising," RSCAS Working Papers 2013/57, European University Institute.
  13. Dietl, Helmut & Lang, Markus & Lin, Panlang, 2013. "Advertising pricing models in media markets: Lump-sum versus per-consumer charges," Information Economics and Policy, Elsevier, vol. 25(4), pages 257-271.
  14. Isabel Amigo & Pablo Belzarena & Sandrine Vaton, 2013. "A pricing scheme for QoS in overlay networks based on first-price auctions and reimbursement," Netnomics, Springer, vol. 14(1), pages 69-93, November.
  15. Shin, Donghee, 2013. "Governing network neutrality: Public perception and policy capacity," 24th European Regional ITS Conference, Florence 2013 88540, International Telecommunications Society (ITS).
  16. Chang, Chih-Wei & Lin, Yan-Shu & Ohta, Hiroshi, 2013. "Optimal location in two-sided markets," Economic Modelling, Elsevier, vol. 35(C), pages 743-750.
  17. Nicolas Curien, 2013. "Net Neutrality is Imperfect and Should Remain So!," RSCAS Working Papers 2013/22, European University Institute.

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